CHINAEDU REPORTS SECOND QUARTER 2013 RESULTS

 
BEIJING–September 11, 2013 – ChinaEdu Corporation (NASDAQ: CEDU) (“ChinaEdu” or the “Company”), a leading online educational services provider in China, today announced its unaudited financial results for the second quarter ended June 30, 2013.[1]
 
Second Quarter 2013 Highlights  
 
·           Total net revenue was $22.9 million for the second quarter of 2013, exceeding the Company’s guidance range for the quarter and representing a 21.9 percent increase from $18.7 million in the corresponding period of 2012. Excluding non-recurring revenue of $1.2 million, total net revenue increased by 16.1% to $21.7 million
·           Net revenue from online degree programs was $18.5 million, an increase of 23.6 percent from $15.0 million in the corresponding period of 2012.
·           Net income attributable to ChinaEdu was $2.8 million, an increase of 84.3 percent from $1.5 million in the corresponding period of 2012.
·           Adjusted net income attributable to ChinaEdu[2] was $3.3 million, an increase of 66.8 percent from $2.0 million in the corresponding period of 2012.
·           Net income attributable to ChinaEdu per diluted ADS[3] was $0.279, an increase of 210.9 percent from $0.089 in the corresponding period of 2012.
·           Adjusted net income attributable to ChinaEdu per diluted ADS[4] was $0.333, an increase of 183.3 percent from $0.118 in the corresponding period of 2012.
·           The number of revenue students[5] enrolled in online degree programs during the Spring 2013 semester increased by 14.5 percent year-over-year to approximately 221,000 students.
 
Julia Huang, executive chairman of ChinaEdu commented, “We are pleased with our financial performance in the second quarter of 2013. We ended the Spring Semester of our core online degree program with growth exceeding our expectation. Looking forward into the second half of 2013, we will continue to execute on plans laid out by our board of directors and management team at the beginning of the year and focus on continuously developing industry leading interactive technology while remaining vigilant in regard to cost control to ensure ongoing profitability. However, we maintain a conservative outlook on the upcoming Fall enrollment and remain committed to quality of students as well as programs. ”    
 
Financial Results for the Second Quarter Ended June 30, 2013
 
Net Revenue
Total net revenue for the second quarter of 2013 was $22.9 million, a 21.9 percent increase from $18.7 million in the corresponding period of 2012. Excluding non-recurring revenue of $1.2 million, the result of certain technology services being provided to online degree programs, total net revenue increased by 16.1% to $21.7 million.
 
Net revenue from online degree programs for the second quarter of 2013 was $18.5 million, a 23.6 percent increase over $15.0 million in the corresponding period of 2012. The increase in net revenue from online degree programs was primarily due to organic growth in revenue students enrolled in online degree programs, and continued expansion and optimization of the Company’s learning centers network. Enrollment for 2013 Spring semester online degree programs was approximately 221,000 revenue students, a 14.5 percent increase from approximately 193,000 revenue students enrolled in the Spring semester in 2012.
 
By the end of the second quarter of 2013, ChinaEdu’s learning centers network was providing recruiting services for 23 universities with 125 operational learning centers, of which 61 were proprietary centers[6] and 64 were contracted centers[7]. This compares to 113 operational learning centers as of June 30, 2012, of which 55 were proprietary and 58 were contracted centers.
 
Net revenue from non-degree programs, including online tutoring programs, private primary and secondary schools and international curriculum programs in the second quarter of 2013 was $4.3 million, a 15.2 percent increase from $3.7 million in the second quarter of 2012. Of that, approximately $0.4 million was attributable to enrollment growth and increased tuition at our private school in Anqing.
 
Cost of Revenue
Total cost of revenue for the second quarter of 2013 was $8.3 million, an increase of 8.9 percent, from $7.7 million in the corresponding period of 2012.
 
Cost of revenue for online degree programs in the second quarter of 2013 was $5.8 million, an increase of 15.4 percent compared to $5.1 million in the corresponding period of 2012. The increase in cost of revenue was primarily related to staff costs increasing by $0.3 million and service station fees increasing by $0.4 million.
 
Cost of revenue for non-degree programs in the second quarter of 2013 was $2.5 million, a decrease of 3.9 percent from $2.6 million in the second quarter of 2012. The decrease in cost of revenue for non-degree programs was primarily related to decreased leasing costs associated with our international curriculum programs and online tutoring programs.
 
Gross Profit and Gross Margin
Gross profit for the second quarter of 2013 was $14.5 million, compared to $11.1 million in the corresponding period of 2012. Gross margin increased to 63.5 percent, compared to 59.2 percent for the corresponding period of 2012.
 
Gross margin for online degree programs was 68.5 percent, an increase from 66.3 percent in the second quarter of 2012. The increase was primarily the result of the significant increase in total net revenue as well as the continued effect of cost control measures.
 
Gross margin for online tutoring programs increased significantly to 67.0 percent from 57.7 percent in the second quarter of 2012, mainly due to increased net revenue as well as decreased lease and service costs.
 
Gross margin for private schools in the second quarter of 2013 increased to 30.4 percent, compared to 26.1 percent in the corresponding period of 2012. The increase in gross margin was primarily the result of increased net revenue at our Anqing school. 
 
Operating Expenses
Total operating expenses were $7.7 million in the second quarter of 2013, an increase of 4.5 percent from $7.4 million in the corresponding period of 2012. As a percentage of net revenue, total operating expenses decreased to 33.9 percent, compared to 39.5 percent in the corresponding period in 2012. The increase in total operating expense was the result of the following:
 
·           General and administrative expenses for the second quarter of 2013 were $3.9 million, a slight decrease of 1.6 percent from $4.0 million in the corresponding period of 2012. As a percentage of net revenue, general and administrative expenses decreased to 17.0 percent from 21.1 percent in the same period in 2012.
·           Selling and marketing expenses were $1.9 million in the second quarter of 2013, an increase of 3.8 percent compared to $1.8 million in the corresponding period of 2012. As a percentage of net revenue, selling and marketing expenses decreased to 8.4 percent from 9.8 percent in the same period in 2012. The increase in selling and marketing expense was primarily related to increased advertising expenses associated with our online tutoring programs and travel expenses associated with our online degree programs.
·           Research and development expenses for the second quarter of 2013 were $1.9 million, an increase of 20.2 percent compared to $1.6 million in the corresponding period of 2012. As a percentage of net revenue, the research and development expense decreased slightly to 8.5 percent in the second quarter of 2013, compared to 8.6 percent in the corresponding period of 2012. The increase in the research and development expenses was primarily the result of increased staff costs associated with the company’s investment in technology upgrades.
 
Income from Operations
Income from operations in the second quarter of 2013 was $6.8 million, an increase of 83.9 percent compared to $3.7 million in the corresponding period of 2012. Operating margin increased to 29.7 percent in the second quarter of 2013, compared to 19.7 percent in the corresponding period of 2012.
 
Adjusted income from operations, a non-GAAP measure defined as income from operations excluding share-based compensation, amortization of intangible assets, land use rights and intangible assets impairment, was $7.3 million in the second quarter of 2013, an increase of 74.8 percent compared to $4.2 million in the corresponding period of 2012.
 
Adjusted operating margin, a non-GAAP measure defined as the ratio of adjusted income from operations (non-GAAP) over net revenue, for the second quarter of 2013 increased to 32.0 percent, compared to 22.3 percent in the corresponding period of 2012.
 
Interest expense
Interest expense for the second quarter of 2013 was $0.5 million, which was primarily related to loans with The Bank of East Asia, Limited.
 
Income Tax Expense
In the second quarter of 2013, the income tax expense was $1.6 million and the effective income tax rate was 23.9 percent.
 
Net Income Attributable to ChinaEdu
Net income attributable to ChinaEdu, which is net income, excluding net income attributable to non-controlling interests, was $2.8 million in the second quarter of 2013, representing an increase of 84.3 percent from $1.5 million in the corresponding period of 2012. The increase was primarily the result of a significant increase in gross profit, as well as effective cost and expense control.
 
Net income attributable to ChinaEdu per basic and diluted ADS was $0.310 and $0.279, respectively, for the second quarter of 2013, compared to $0.096 and $0.089, respectively, for the corresponding period of 2012. The increase was the result of the significant increase in net income attributable to ChinaEdu and a significant decrease of the number of diluted ADS after a share repurchase of 21,460,293 ordinary shares in aggregate between January and June 2013.
 
Adjusted net income attributable to ChinaEdu (non-GAAP) was $3.3 million in the second quarter of 2013, compared to $2.0 million in the corresponding period of 2012. Adjusted net margin, a non-GAAP measure defined as the ratio of adjusted net income attributable to ChinaEdu (non-GAAP) over net revenue, was 14.6 percent in the second quarter of 2013, compared to 10.7 percent in the corresponding period of 2012.
 
Adjusted net income attributable to ChinaEdu per basic and diluted ADS (non-GAAP) was $0.370 and $0.333 respectively, for the second quarter of 2013, compared to $0.126 and $0.118, respectively, for the corresponding period of 2012.
 
Deferred Revenue
As of June 30, 2013, deferred revenue was $24.3 million, consisting of current deferred revenue in the amount of $22.9 million and non-current deferred revenue in the amount of $1.4 million.
 
In general, Spring semester tuition for online degree programs is received during the second quarter but is recognized both in the second quarter and the third quarter of the fiscal year.
 
Private school revenue is received in September, but amortized over 6 or 12 months while online tutoring program revenue is mostly received at program enrollment and is amortized within 12 months.
 
Cash and Cash Equivalents and Term Deposits
As of June 30, 2013, the Company reported cash and cash equivalents and term deposits of $57.0 million, which primarily consisted of cash and cash equivalents, and term deposits with original maturity terms of greater than three months but less than one year.
 
Amounts Due from Related Parties
Amounts due from related parties, which represents cash owed to the Company by collaborative alliance partners, were $64.2 million as of June 30, 2013 compared to $49.2 million as of December 31, 2012.
 
2013 Year-to-Date Financial Results
 
Net Revenue
For the six months ended June 30, 2013, total net revenue was $42.3 million, representing an increase of 13.4 percent over $37.3 million in the corresponding period of 2012. Net revenue from online degree programs for the first half of 2013 was $33.9 million, representing a 13.1 percent increase from $30.0 million in the corresponding period of 2012. Net revenue from non-online degree programs for the first half of 2013 was $8.4 million, compared to $7.3 million in 2012, a 14.7 percent increase. Growth in total net revenue in the first half of 2013 was the result of strong enrollment in online degree programs in the Fall semester of 2012 as well as the Spring semester of 2013. Net revenue at the Anqing School increased by $0.7 million or 21.8% compared to the corresponding period in 2012, while the Company saw a continued decrease in revenue contributed by international and elite curriculum programs.
 
Cost of Revenue
For the six months ended June 30, 2013, total cost of revenue was $15.9 million, an increase from $15.1 million in the corresponding period of 2012. Cost of revenue for online degree programs in the first half of 2013 was $11.1 million, an increase of 10.8 percent compared to $10.0 million in the corresponding period of 2012. The increase in cost of revenue in the first half of 2013 was primarily the result of cost increases associated with a larger headcount and the expansion of the Company’s learning centers network. 
 
Cost of revenue for non-online degree programs in the first half of 2013 was $4.8 million, a decrease of 4.6 percent compared to $5.1 million in the corresponding period of 2012. The decrease in cost of revenue was primarily related to the decrease in leasing costs and service costs associated with our 101 online tutoring programs, a decrease in leasing costs as well as a decrease in depreciation and amortization costs associated with international curriculum programs.
 
Gross Profit
Gross profit for the six months ended June 30, 2013 was $26.4 million, an increase of 18.7 percent compared with $22.2 million for the corresponding period in 2012.
 
Income from Operations
Income from operations was $11.1 million for the six months ended June 30, 2013, representing an increase of 51.3 percent from $7.3 million for the corresponding period of 2012. Operating margin was 26.2 percent for the six months ended June 30, 2013 compared to 19.6 percent for the corresponding period of 2012.
 
Adjusted income from operations (non-GAAP) was $12.2 million for the first half of 2013, representing an increase of 45.4 percent, compared to $8.4 million in the corresponding period of 2012. Adjusted operating margin (non-GAAP) for the six months ended June 30, 2013 was 28.8 percent, compared to 22.5 percent for the corresponding period in 2012.
 
Interest expense
Interest expense for the first half of 2013 was $0.8 million, which was primarily related to loans with The Bank of East Asia, Limited.
 
Income Tax Expense
Income tax expense for the first half of 2013 was $2.6 million, as compared with $1.8 million for the corresponding period of in 2012. 
 
Net Income Attributable to Non-controlling Interests
Net income attributable to non-controlling interests was $4.1 million in first half of 2013, an increase of 10.9 percent compared to $3.7 million in the first half of 2012. The increase was primarily attributable to the non-controlling interest impact related to the increase in net income from online degree programs in the first half of 2013.
 
Net Income attributable to ChinaEdu
Net income attributable to ChinaEdu was $4.7 million for the six months ended June 30, 2013. This represents an increase of 46.0 percent from $3.2 million for the corresponding period of 2012. Net margin was 11.0 percent for the six months ended June 30, 2013, compared to 8.6 percent for the corresponding period of 2012.
 
Adjusted net margin was 13.6 percent for the six months ended June 30, 2013, compared to 11.3 percent for the corresponding period of 2012.The increase was primarily due to increased net income in the first half of 2013.
 
Third Quarter 2013 Guidance
ChinaEdu management expects total net revenue in the third quarter of 2013 to range from RMB132 million to RMB137 million or $21.5 million to $22.3 million, representing a 6 percent to 10 percent increase from RMB124 million or $20.2 million compared to the corresponding period of 2012.
 
Conference Call
ChinaEdu’s management will hold an earnings conference call at 8:00 a.m. U.S. Eastern Time on September 12, 2013 (8:00 p.m. Beijing/Hong Kong Time on September 12, 2013).
 
Dial-in details for the earnings conference call are as follows:
China                          400 120 0539
Hong Kong                 800 905 927
United Kingdom                 0800 015 9725
United States             1 855 298 3404
New York City (Toll) 1 631 514 2526
Conference Title:     ChinaEdu Q2 2013 Earnings Conference Call
Conference Passcode:      ChinaEdu
 
A live and archived webcast of the conference call will be available on the investor relations page of ChinaEdu's website at http://ir.chinaedu.net and a replay of the conference call may be accessed by phone until September 18, 2013.
 
Dial-in numbers for the replay are as follows:
 
China                         4001842240
Hong Kong                800 966 697
United Kingdom      0800 169 7301
United States                   1 866 846 0868
Conference Title:     ChinaEdu Q2 2013 Earnings Conference Call
Replay Passcode:    2286813
 
Non-GAAP Financial Measures
To supplement the unaudited condensed consolidated financial information presented in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”), the Company uses non-GAAP measures of income from operations and net income attributable to ChinaEdu, which are adjusted from results based on GAAP to exclude certain non-cash items of share-based compensation, amortization of intangible assets and land use rights and intangible assets impairment. Adjusted operating margin defined as the ratio of adjusted operating income from operation over net revenue. Adjusted net income attributable to ChinaEdu per basic and diluted ADS are a non-GAAP measure which are computed using adjusted net income attributable to ChinaEdu over the number of ADSs used in net income attributable to ChinaEdu per basic and diluted ADS calculation.
 
These non-GAAP financial measures are provided to enhance the investors’ overall understanding of the Company’s current and past financial performance in on-going core operations as well as prospects for the future. These measures should be considered in addition to results prepared and presented in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Management considers the non-GAAP information as important measures internally and therefore deems it important to provide all of this information to investors.
 
About ChinaEdu
ChinaEdu Corporation is an educational services provider in China, incorporated as an exempted limited liability company in the Cayman Islands. Established in 1999, the Company’s primary business is to provide comprehensive services to the online degree programs of leading Chinese universities. These services include academic program development, technology services, enrollment marketing, student support services and finance operations. The Company’s other lines of businesses include the operation of private primary and secondary schools, online interactive tutoring services and providing marketing, support for international curriculum programs and online learning community for adult students.
 
The Company believes it is the largest service provider to online degree programs in China in terms of the number of higher education institutions that are served and the number of student enrollments supported. The Company currently provides technical, recruiting and other services to 27 universities with online degree programs and provides services and support to 11 additional universities that are awaiting regulatory approval to launch their online programs. Of these 38 universities, 13 of them have entered into collaborative alliances with ChinaEdu, ranging from 15 to 50 years in length. Eight of them have entered into technology service agreements, ranging from 3 to 20 years in length. ChinaEdu also performs recruiting services through its nationwide learning center network for 23 universities, including 6 with which the Company has either established collaborative alliances or entered into technology service agreements.
 
Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, expectations, goals, and projections, which are subject to numerous assumptions, risks, and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and contingencies, many of which are beyond our control which may cause actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. The Company’s actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including those described under the heading “Risk Factors” in the Company’s Annual Report on Form 20-F for the year ended December 31, 2012, and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. Unless required by law, the Company undertakes no obligation to (and expressly disclaim any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

For investor and media inquiries, please contact:

Helen Plummer
Senior Investor Relations Coordinator
ChinaEdu Corporation
Phone: +1 908-442-9395
E-mail: helen@chinaedu.net

Simon Mei
Chief Financial Officer
ChinaEdu Corporation
Phone: +86(10)84187301
E-mail: simon@chinaedu.net

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